Is This Bold Move a Win for This Tech Giant?

In this video, Andrew Tonner examines Intel's potential foray into the chip fabrication business. With the PC market in decline, Andrew says, Intel needs to diversify into other sources of revenue, and chip fabrication would be one such source. While Intel has the size, scale and technology to pull this move off, chip fabrication requires a lot of cash to start up, and Intel has no major customer lined up to buy these chips. So while chip fabrication will bring in added revenue, Andrew argues, the startup costs may erode any revenues significantly.

For more, check out the video.

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You and the other Fools continue to stun me with your analysis and conclusions.

If Intel negotiated foundry positions and drop their margins and profitability, then because of their size, wouldn't they have at least similar profitability to TSM? TSM has 48% margins but commands a PE ratio of 18 vs Intel 10. The other smaller foundries are struggling because they cannot afford the capex bill.

Today Intel is writing off idle 32nm and 22nm capacity. Writing off idle capacity is even lower margin than foundry margins. What other foundry could offer any reasonable volumes of 22nm capacity today? None.

Intel would be able to command some premium from their fabs because they will have the ability to deliver wafers in volume. Intel will target duopoly markets (Xilinx vs Altera) where access to leading edge foundry agreements give the Intel customer an advantage. An Intel foundry agreement will give a duopolist a tremendous advantage.

Intel can and would be happy to foundry for Apple if they could do so with an agreement that Apple would switch to Intel's Atom vs the An chips at say 14nm gen. There would have to be some assurance that the DOJ and EU would not see that move as anti-competitive against both Apple and Intel. Happy hypothezing.